Speaker 1: Welcome to the Bloomberg surveillance podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrill and Lisa Brownwitz Jailee, we bring you
Speaker 1: insight from the best and economics, finance, investment and international relations.
Speaker 1: Find Bloomberg surveillance on Apple podcast, soundcloud, Bloomberg Dot Com and,
Speaker 1: of course, on the Bloomberg terminal. Joining us now David stops,
Speaker 1: globe ahead across asset thematic strategy at JP Morgan Private Bank. David,
Speaker 1: good to catch up with you, sir. Let's start here.
Speaker 1: Can you give me one good reason to be bullish
Speaker 1: right now? Well, John, I think if you're going to
Speaker 1: meet the bullish case, I think you're going to look
Speaker 1: at the resilience of domestic consumer spending in parts of
Speaker 1: the Western world. I think you're also going to look
Speaker 1: at how much tightening has been priced in and and
Speaker 1: indeed expectations of recession you're broadening across across Wall Street.
Speaker 1: But I think bullish is not that we're going to
Speaker 1: see the kind of boom conditions we saw last year.
Speaker 1: Bullish would be a soft landing, a pretty soggy your
Speaker 1: economy next next year, but one that avoids a recession
Speaker 1: and avoids a major door down and earning. That's a
Speaker 1: bullish as you can get. I think right now. That's
Speaker 1: not exactly a ren endorsement of risk as it's David,
Speaker 1: I do wonder, especially at a time when Tina is
Speaker 1: dead right, there is an alternative and it is cash,
Speaker 1: it is short term instruments that are actually yielding something
Speaker 1: on inflation adjusted terms for the first time in a
Speaker 1: long time, is there any justification not to just hide
Speaker 1: out some of these instruments, collect the income and wait
Speaker 1: for a better, more clear entry? Well, we're absolutely recommending
Speaker 1: parts of the Fixed Income Universe at this point. As
Speaker 1: you as you rightly say, a lot of value is
Speaker 1: being created both at the short and long end. As
Speaker 1: as you were thinking the Intro, the ten years, at three,
Speaker 1: three fifty. We would be buyers of that in in
Speaker 1: portfolios that don't have any duration right now. We see
Speaker 1: a lot of value in preferreds as well. So there's
Speaker 1: plenty of ways to meet your financial goals if you
Speaker 1: want a mid single digit return without taking a lot
Speaker 1: of exerty risk. And it's maybe the first time you
Speaker 1: could say that in in a long, long time, given
Speaker 1: the lower for longer era that we've been on interest
Speaker 1: rates also. least, I think that. I think that you've
Speaker 1: really seen still some value be created in the structural
Speaker 1: in the structural changes that we see in the economy
Speaker 1: going to be going for clean energy, Fintech, genetic trapy,
Speaker 1: some tremendous but value there in factors and themes that
Speaker 1: are going to be huge drivers of our society going forward. David,
Speaker 1: I just want you to elaborate a little bit. You
Speaker 1: said that you would be buyers of ten year treasuries
Speaker 1: at three and a half percent. Do you think that
Speaker 1: this is the new peak and that basically, they cannot
Speaker 1: continue to lose more value yields up further? Oh No,
Speaker 1: we never we'd never say that definitively, but we just
Speaker 1: think that parts of the Fixed Income Space Right now
Speaker 1: have asymmetry about them. If you do go into a
Speaker 1: recession next year, we would fact your bond deals to
Speaker 1: fall significantly and we think that the potential returns and
Speaker 1: that scenario are now greater than the losses you may
Speaker 1: get if if bond deals continue to drift higher. So look,
Speaker 1: there's absolutely not a risk free trade right now, but
Speaker 1: a lot of our client's portfolios have very, very short
Speaker 1: to Anneel duration and clients have been waiting to leg
Speaker 1: in tow better yields over over the mediums, longer term. Well,
Speaker 1: now here they are and I think, for for the
Speaker 1: right portfolio for clients looking Um you for for that
Speaker 1: yield and for that stable return. Treasuries now are an
Speaker 1: option in the way, as you said, that they had
Speaker 1: not been in the previous decond thank you. There was
Speaker 1: stubbs there of JP Morgan Private Bank. Dana Peterson joins
Speaker 1: us now. Chief economists at the Conference Board. Dana, can
Speaker 1: you tell us how bad things are in this economy,
Speaker 1: because the data we're still getting signals resilience. You see
Speaker 1: the same thing? Sure, we're definitely seeing resil into the
Speaker 1: U S economy. The labor markets still strong. Jobless claims
Speaker 1: have been coming off. The adults data tell us that
Speaker 1: there's still a lot of job openings. When we look
Speaker 1: at GDP tracking for the third quarter, maybe we'll have
Speaker 1: something just slightly north of zero. Certainly consumers did spend
Speaker 1: in August. Spending was up two tenths of a percentage
Speaker 1: point in real terms, and also the trade outlook is
Speaker 1: looking a little bit better. With all that, we think
Speaker 1: that the Fed is it's a it's a great opportunity
Speaker 1: for the Fed to continue to raise interest rates to
Speaker 1: tackle really elevated inflation. Okay, so to go to John's point,
Speaker 1: is consumer resilience good or bad? You're saying it's a
Speaker 1: good opportunity for the Fed to raise rates, which other
Speaker 1: people would say is bad for the economy longer term. Well,
Speaker 1: I mean the thing is that inflation is is really bad. Right.
Speaker 1: So the headline inflation for the C P I only
Speaker 1: tick down the eight point three percent. Meanwhile the corps
Speaker 1: moved outward to six point three percent. A lot of
Speaker 1: the drivers, our food and shelter costs, basics for consumers.
Speaker 1: So that's really negative for the consumer and certainly the
Speaker 1: roads their incomes. And so it's definitely not a good
Speaker 1: thing if you have high inflation, but certainly it is
Speaker 1: a good thing if consumers are able to still weather
Speaker 1: higher interest rate hikes. Certainly that weighs on housing uh purchases,
Speaker 1: but nonetheless it's still a good thing overall for the economy.
Speaker 1: Do you have a sense of how quickly we're going
Speaker 1: to see the effects of the rate rises that we've
Speaker 1: already seen, of quantitative tightening that has yet to really happen,
Speaker 1: but ostensibly will happen at some point in the near future.
Speaker 1: How long does it take before it hits the economy? Well,
Speaker 1: I mean the thing is that it's really difficult to know.
Speaker 1: I mean back a long time ago we would say, well,
Speaker 1: it takes twelve to eighteen months for any fat actions
Speaker 1: to really feed through. But we're already seeing that fat
Speaker 1: actions are having an impact on the housing market Um
Speaker 1: and that's certainly a positive for the FT in terms
Speaker 1: of it's it's addressing inflation. So you're getting at these
Speaker 1: asset prices, even though the Fed is not target asset prices,
Speaker 1: but certainly in terms of the consumer price index is
Speaker 1: the Fed still, you know, really needs to do the
Speaker 1: work now and we should probably start seeing the effects
Speaker 1: later on next year. We're thinking that, uh, core and fleet,
Speaker 1: well key inflation gauges, probably won't return to two percent
Speaker 1: until very early Dana, every single piece of research we've
Speaker 1: had basically over the last week has been a bank
Speaker 1: somewhere on Wall Street upgrading their terminal rate view. Goldman
Speaker 1: the latest they look for four to fourth point to
Speaker 1: five by year ended twenty two, and maybe higher than
Speaker 1: that by the time we get through three DNA. The
Speaker 1: number one pushback, the LESA gets, that I get, the
Speaker 1: Tom gets, is that we can't live with four percent rates,
Speaker 1: that this economy just can't live with it, that the
Speaker 1: debt piles is too high the sovereign and the Treasury Na.
Speaker 1: Do you agree with that? What's the constructive view on
Speaker 1: why we can live with a four or four point
Speaker 1: five percent fed funds rate? Well, I mean, first of
Speaker 1: all I want to say the Conference Board came out
Speaker 1: really early with that call for or interest rate topping
Speaker 1: out at four percent and we've even been saying it
Speaker 1: could be even higher. Inflation doesn't really move and it
Speaker 1: remain sticky. But I think the Agus economy can and certainly,
Speaker 1: when you think about Um what policy makers have been saying,
Speaker 1: they're saying, look, you know we're in for a bit
Speaker 1: of pain, which I think is code for a recession,
Speaker 1: a mild, maybe brief recession. And certainly when you look
Speaker 1: at the labor markets, that's still super strong. It's going
Speaker 1: to remain uh, pretty robust, especially given the fact that
Speaker 1: you have labor shortages and so that means there's still
Speaker 1: going to be some hiring and not a cratering in
Speaker 1: the labor market. I think with all of that, yes,
Speaker 1: the US economy is going to have to endure a
Speaker 1: period of elevated interest rates in order to tackle inflation.
Speaker 1: Inflation is the worst problem here. So, Dana, that's going
Speaker 1: to lead to higher unemployment by design, and we've been
Speaker 1: talking about this. How much higher, I mean, do we
Speaker 1: see a commensurate increase in your expectations for the unemployment
Speaker 1: rate with every increase that we hear? To John's point
Speaker 1: from all street about the Fed funds rate and where
Speaker 1: we end up? We think with our forecasts of the
Speaker 1: four percent fed funds rate, we think the unemployment rate
Speaker 1: will probably arise to four percent even still. Les's incredibly
Speaker 1: low Um and even if we go into four and
Speaker 1: a half, go to four and a half percent, that's
Speaker 1: probably around the neutral rate Um, and so that suggests
Speaker 1: we still have a very strong labor market. We're not
Speaker 1: expecting to see five and six percent unemployment here. This
Speaker 1: is a very different labor market. We didn't have shortages
Speaker 1: ten twenty years ago. We do now and that's really
Speaker 1: going to help, uh, I think, keep the labor market
Speaker 1: from worsening relative to the overall economy. Is it instructive
Speaker 1: for us to look at averages here when we talk
Speaker 1: about the labor market, when we talk about how well
Speaker 1: different households can weather this, especially because you're talking about,
Speaker 1: you know, half of the income in the United States
Speaker 1: driven by households that earn more than a hundred thousand dollars,
Speaker 1: is put out there by Morgan Stanley. Most of them
Speaker 1: own their own homes, either outright or else with mortgage
Speaker 1: rates that were locked in lower, at very low rates.
Speaker 1: The rest of the economy, the rest of the households
Speaker 1: are really struggling, both because they've got lower income and
Speaker 1: because they have, if not fixed costs, but pay rents
Speaker 1: and have to deal with the increase there. How do
Speaker 1: you gauge that out at a time where we're looking
Speaker 1: at averages to determine policy? Well, it's interesting when you
Speaker 1: look at certainly wage gains, the folks who have gained
Speaker 1: the most in terms of wage gains, the next last
Speaker 1: over the last couple of years, have been people on
Speaker 1: the lower end of the income spectrum, also people who
Speaker 1: have been quitting, also people work in those in person
Speaker 1: services types of jobs that tend to have lower wages
Speaker 1: in general. Those are the people who have seen the
Speaker 1: biggest gains and wages, and so it's I mean, we
Speaker 1: certainly should look at the granular data, but it's not
Speaker 1: necessarily the case that, you know, folks at the lower
Speaker 1: end of the spectrum have been losing out here. They've
Speaker 1: actually been gaining by quitting and also through the very
Speaker 1: aggressive tactics that pleas have been using to attract labor,
Speaker 1: especially for things for businesses like restaurants and hotels and
Speaker 1: manufacturing and transportation, which tend to have folks on the
Speaker 1: lower end of the income spectrum. At least. The credit
Speaker 1: is Jean Barvan of black rock for coming out in
Speaker 1: the last month or so. I'm raising a question that
Speaker 1: I don't think we've talked enough about, which is what
Speaker 1: is the appropriate time frame to try and bring inflation
Speaker 1: back towards target? What you hear there from Dana is
Speaker 1: not three story and I just wonder if the risk
Speaker 1: ascue towards maybe pushing that out even further. This task
Speaker 1: might be big and more difficult than maybe we've given
Speaker 1: it credit for, and perhaps people won't have the appetite
Speaker 1: for some of the economic pain in order to get
Speaker 1: it down to two or even four and I think that. That,
Speaker 1: to your point, is the whole Adam posing view. Do
Speaker 1: we get comfortable with a three percent target for a
Speaker 1: little bit longer? Is that politically feasible? But they would
Speaker 1: you go with that? Do you think maybe risk askew
Speaker 1: to this taking longer? Well, it certainly isn't our forecast
Speaker 1: that it's going to take a while. I like we
Speaker 1: don't have the policy. I'm sorry, we don't have interest rates.
Speaker 1: We don't have interest rates falling next year because we
Speaker 1: think inflation is going to remain elevated and certainly this
Speaker 1: is going to take some time. But there is that
Speaker 1: possibility out there. Is something that I was saying earlier
Speaker 1: in the spring that maybe the Fed will get more
Speaker 1: comfortable with having an inflation close to the three percent
Speaker 1: than two percent, especially if we have a very significant
Speaker 1: downturn and economic activity. But I think it's also a
Speaker 1: function of the fact that we have a lot more
Speaker 1: inflationary pressures, long term inflationary pressures such as labor shortages,
Speaker 1: such as the semiconductor shortage, such as industrial policies where
Speaker 1: businesses have to reorient their supply chain that's very expensive,
Speaker 1: and so all those things are going to get passed
Speaker 1: on to the customer, and so it's going to be
Speaker 1: very difficult, I think, for the Fed to keep interest rate,
Speaker 1: I'm sorry, to keep inflation close to that too percent target,
Speaker 1: and so either. So I think that those are all
Speaker 1: forces out there that are going to weigh on the
Speaker 1: Fed and certainly the economy over the longer term. Danna,
Speaker 1: you want of the best. Thanks for being with us,
Speaker 1: Danna Petterson. There at the Conference Board. Matto joins US now.
Speaker 1: They had a few s investment grade and seeing a
Speaker 1: portfolio manager at investco. Matt, have we seen the worst
Speaker 1: of it and do you want to stop buying Hagan Warton, Jonathan? Uh? Yeah,
Speaker 1: I think we've. We've probably not seen the worst of
Speaker 1: it yet, Um, but things are certainly attractive. I think
Speaker 1: you look at valuations, it's it's impossible to argue that
Speaker 1: they don't. Things don't look cheap, particularly investment grade and
Speaker 1: I yield. They look very cheap. But the problem as
Speaker 1: investors keep being early and it's painful to be early.
Speaker 1: You know that. The old saying is Um, you know,
Speaker 1: if you're earlier, you're wrong, and right now everybody that's
Speaker 1: been early has been wrong. And so even though the
Speaker 1: valuations are there. It looks attractive. You're probably gonna make
Speaker 1: money over the next year, but over the next few weeks,
Speaker 1: who knows? We've still got to get to the next
Speaker 1: CPI prep before you can have any sort of clarity
Speaker 1: at this point. On Matt, a lot of people question
Speaker 1: what credit spreads, with the extra premium that investors demand
Speaker 1: to own corporate debt over benchmark rates, over the benchmark
Speaker 1: full faith and credit at the United States, whether that's
Speaker 1: actually pricing in the economic pain that a four to
Speaker 1: four and a half percent fed funds rate is conferring.
Speaker 1: Do you think so? So at this point it's not.
Speaker 1: It's it's really pricing in a slowdown of the economy.
Speaker 1: It's not pricing in a hard procession. Um, you know,
Speaker 1: I think at this point all in yields, you know, historically,
Speaker 1: you know I have not been not been this high
Speaker 1: in thirty years. So if you're looking at pure credit
Speaker 1: spreads versus all in yields is a little bit different
Speaker 1: a story. But we're not seeing a lot of pain
Speaker 1: in corporate credit. The last few weeks, even, or last
Speaker 1: week or so, even after the CPI, it's mainly been
Speaker 1: rate driven. So the credit markets are telling you that
Speaker 1: corporations can get through this Um that unless this, this inflation,
Speaker 1: continues for forever. Um You know, at some point we're
Speaker 1: gonna get the Fed more in balance and we're actually
Speaker 1: gonna see Um, the strength of these balance sheets went out.
Speaker 1: But we still have to get to that terminal, you know,
Speaker 1: terminal high in terminal rate, in order to know, you know,
Speaker 1: how bad it's gonna be from the Fed. A number
Speaker 1: of investors have gotten pretty bullish actually on the prospect
Speaker 1: of credit. I'm thinking, for example, of Jeff gunlock over
Speaker 1: at double line or oak tree, seeing equity like potential
Speaker 1: returns in credit. Do you agree that at this point
Speaker 1: it's a time to lean in and that you're gonna
Speaker 1: get really good returns? So, yeah, we look at the
Speaker 1: difference between Equity Yields and credit yields and if you
Speaker 1: I like to look at three to five of your
Speaker 1: credit yields because you don't have to take on a
Speaker 1: lot of duration there and you're you're getting about three
Speaker 1: percentage points extra yield by buying bonds and you are
Speaker 1: buying stocks. And so to me it's it's, it's, it's
Speaker 1: it's a very, very attractive time to be buying bonds
Speaker 1: versus stocks, and I'm not, you know, stock expert, but
Speaker 1: I'm just staying on a relevant basis. It looks pretty
Speaker 1: good to me, Um and so, from that same point
Speaker 1: you're locking in five percent yields for the first time
Speaker 1: since two thousand and nine on ten year credit. You
Speaker 1: can lock in pretty much the same on front end credit.
Speaker 1: So I like credit at this point. Again, I just
Speaker 1: think that the timing is very difficult. But if you're
Speaker 1: able to close your eyes and buy, we think they're
Speaker 1: gonna do well. I've got no problem with the bond
Speaker 1: market guys talking about stokes. The stock market guys do
Speaker 1: it all the time. They're always talking about the bum market, Matt,
Speaker 1: least when I've reflect on the following over the last
Speaker 1: week or so. In fact, we've been doing it for
Speaker 1: a few months now. The tone that I still get
Speaker 1: from a lot of guests on this program is that
Speaker 1: these issues are still somewhat temporary, that even if the
Speaker 1: Fed goes to four or four and a half, ultimately
Speaker 1: we returned to the world world of the last ten
Speaker 1: years or so. Are you pushing back against that, Matt?
Speaker 1: I think we'll eventually get there, but it's just taking
Speaker 1: so long to get anywhere. If you just think about
Speaker 1: how long we've been in this pandemic. How long been?
Speaker 1: You know, we're officially out of it now, I guess,
Speaker 1: but it's just taking longer to get out of everything
Speaker 1: and get back to normal. So Um, I think the
Speaker 1: longer term trends down the road, aging demographics, technological innovation,
Speaker 1: those are key drivers of of having deflation or lower inflation,
Speaker 1: but they just can't take place fast enough right now.
Speaker 1: And so in that regard, any expectations that we would
Speaker 1: have had for a quicker turnaround and have been have
Speaker 1: been put on hold. Um or a quicker a quicker
Speaker 1: return to normal. And so from that standpoint we're gonna
Speaker 1: have to ride this out a little longer. The next
Speaker 1: NPI print is going to be, you know, on everybody's mind,
Speaker 1: but that may not be enough, for we'd have to
Speaker 1: wait for another one and then another one. So, you know,
Speaker 1: call it two thousand and five, but it's not happening
Speaker 1: nearly as quickly as we'd like it too. We just
Speaker 1: have to rely on evaluations being attractive at this point.
Speaker 1: Just quickly, Matt, what would you be asking Fred Chair
Speaker 1: j Powell, this Wednesday. What do you want to hear
Speaker 1: from him? So I want to know two things. First off,
Speaker 1: what are you gonna do with your your mortgage book? Um,
Speaker 1: you know. Are you going to start to sell is?
Speaker 1: Are you? Are you? Are you? Are you considering that
Speaker 1: at this point at least? And then second I want
Speaker 1: to know how patient are you? You know, we know
Speaker 1: that there's a lot of hikes that have been in
Speaker 1: the pipeline. There's a lot of pipes that a lot
Speaker 1: of hikes that are going to hit the economy at
Speaker 1: some point. You know, how patient are you willing to be?
Speaker 1: And at what point are you? Are you going to
Speaker 1: be more, even more aggressive? You know that would be
Speaker 1: a hunter basis points rather than seventy five. I think
Speaker 1: he's going to take his time. I think he has
Speaker 1: to know that this is going to slow the economy.
Speaker 1: But if he just says I'm out of patience, Um,
Speaker 1: you know, that's gonna be a problem of a vest
Speaker 1: to catch Hump Buddy as a white Peter Sheer, head
Speaker 1: of macro strategy at Academy Securities, joining us now. And Peter,
Speaker 1: you were talking about last week and that something happened
Speaker 1: that was pretty dramatic in your view, and it wasn't
Speaker 1: necessarily a total reset of fed expectations. It was fedex explain. Listen,
Speaker 1: I keep looking at the data and a lot of
Speaker 1: the data we get is backward looking, it's weak, it
Speaker 1: tends to get revised. So I'm kind of looking what
Speaker 1: is really contemporaneous, what is effective, and the Fed x
Speaker 1: warning to me is real right that that's someone seeing
Speaker 1: business move in real time. Stated today. It came right
Speaker 1: on the heels of CPI where we had housing inflation
Speaker 1: was up point seven, one of the biggest contributors to
Speaker 1: the CPI. And yet, as far as anyone can tell,
Speaker 1: nothing good is going on in the housing market right now.
Speaker 1: So I think we all know where the data is
Speaker 1: headed as the official data catches up, and it's going
Speaker 1: to be weak and it's gonna be a little bit scary.
Speaker 1: So do you think that the Fed is going to
Speaker 1: reflect this on Wednesday when we hear from them? Wow,
Speaker 1: I think they are caught on such a you know,
Speaker 1: between a rock and a hard spot, where they've been
Speaker 1: so hockey, starting at Jackson old they've been continuing that message.
Speaker 1: I think someone's got to step back and say okay,
Speaker 1: we've got to be a little bit careful. Traditionally it
Speaker 1: does take some time for our hikes to come through
Speaker 1: the economy and everything we're seeing real time, especially if
Speaker 1: you look at the wealth effect, is saying, Whoa, this
Speaker 1: is getting a little bit dangerous. I think the fixation
Speaker 1: on CP I, how it's calculated, is wrong. I think
Speaker 1: how as usual, is going to wind up having to
Speaker 1: let some of his inner dub come out. So you
Speaker 1: said it's getting a little bit dangerous. Can you explain,
Speaker 1: because a lot of people are pointing to the resilience
Speaker 1: of the consumer. Yes, perhaps Fedex is an outlier, perhaps
Speaker 1: there's some idiosyncratic issues in Tantem with a global economy
Speaker 1: that's slowing down, but what are you looking at that's
Speaker 1: telling you that things are getting dangerous? Well, I'll even
Speaker 1: go back to the consumer. Right people are saying the
Speaker 1: consumer did well, but if you look at the control group,
Speaker 1: people thought they spent point eight percent last month, it
Speaker 1: turns out they only spent point four. Expectations were point five.
Speaker 1: This month they spend zero percent. So I don't think
Speaker 1: the consumer is anywhere near and strong. I think they're
Speaker 1: going back to buying discounting. I'm watching the inventory build,
Speaker 1: which has been shocking. You're seeing month after month after
Speaker 1: month of inventory build as two things I think happened. One,
Speaker 1: companies overestimated consumer demand. They didn't realize how much consumers
Speaker 1: were pulling forward because they were worried about supply chains,
Speaker 1: and two, companies were so worried about supply chains they've overstocked.
Speaker 1: So I think that's a real hangover for this economy.
Speaker 1: And then I look at Crypto and that whole market space. Right,
Speaker 1: it went to two trillion. It funded all these industries.
Speaker 1: They're all struggling and they were sending money wherever they could.
Speaker 1: Right they were buying chips, they were buying new computer systems,
Speaker 1: they were buying, you know, ads on anything as they
Speaker 1: have to focus on actually just survival and turning casual positive.
Speaker 1: That's gonna be a big chunk of this economy. These
Speaker 1: disruptive stocks that keep coming back to them. They were
Speaker 1: such a huge part of the growth story and I
Speaker 1: think they're going to really weigh on the economy because
Speaker 1: their employers were rich in spending and the companies themselves
Speaker 1: were cash rich in spending, and that's not occurring right now. Okay. So, Peter,
Speaker 1: you said that Fed Chair j Powell needs to let
Speaker 1: out his inner dove in order to counteract some of
Speaker 1: the weakness that you're seeing uh to build at a
Speaker 1: pretty rapid clip throughout the economy. But that to other people,
Speaker 1: particularly Equity Bulls, would argue this is exactly what they're
Speaker 1: counting on, basically the Fed pivoting right. This goes back
Speaker 1: to that discussion that exhausted so many people and no one,
Speaker 1: nobody wanted to hear the p word ever again. I mean,
Speaker 1: is that basically what you're saying, that this is a
Speaker 1: bull case for markets, because it is a bear case
Speaker 1: for the economy and a bear case for this Federal Reserve?
Speaker 1: I think it's a temporary bull case. I think we're
Speaker 1: well past the stage of lower yields being good for
Speaker 1: the economy. I think you might get a bounced on
Speaker 1: the Fed if he does this little bit of a pivot.
Speaker 1: But I think the reality, reality is just he's gone
Speaker 1: too far. We're still feeling, starting to feel the impacts
Speaker 1: of what's gone on. Before people are going to realize
Speaker 1: generally lower commodity prices, lower bond yields are the risk
Speaker 1: off type trade I think we forgot all about that.
Speaker 1: And then, let's not forget we've started quantitative tightening a
Speaker 1: little bit more aggressively. We're going to see more of
Speaker 1: that and to me I've always believed that quantitative easing
Speaker 1: really forced people out the risk spectrum and inflated all
Speaker 1: asset prices, and so I think the crawlity of that
Speaker 1: is going to be that quantitative tightening allows people to
Speaker 1: move down the risk spectrum. So I think you've got
Speaker 1: that as an additional headwind and that's just starting to
Speaker 1: ramp up. So right now I'm looking at two year
Speaker 1: yields that have really pushed hired dramatically this morning. Three
Speaker 1: point nine three. We're really close to that four percent level.
Speaker 1: If you talk about lower yields being a bad thing
Speaker 1: for the economy, is it a good thing as an
Speaker 1: investor to go into bonds as an actual haven at
Speaker 1: a time when they're providing yield? We're hearing from David Stubbs,
Speaker 1: from JP Morgan, we've heard from Matt Brill over at
Speaker 1: Invest Go, both talking up the bull case for bonds. Yeah,
Speaker 1: I would agree with that. I'm definitely overweight bonds. I
Speaker 1: like them. You know, I hate to even say this
Speaker 1: because it's been such a disaster, but the twenty year
Speaker 1: Treasury action is appealing and over the past three weeks
Speaker 1: I think we've seen a little bit more support for
Speaker 1: that twenty year. It's just such an outlier in the
Speaker 1: yield curve that it seems attractive. So I like the
Speaker 1: overweight bonds. I like the longer day to more than
Speaker 1: the front end just because I think we'll get more
Speaker 1: bang for the buck. But I think that's really it's
Speaker 1: going to be important and I don't think stocks are
Speaker 1: going to go higher on the back of lower yields.
Speaker 1: Maybe initially, but it's going to be one of these
Speaker 1: risk oftect trades. So we've heard from oak tree, we've
Speaker 1: heard form double line Jeff Gunlock, and they've been talking
Speaker 1: about pretty extreme yield returns for credit for some of
Speaker 1: this longer term debt, talking up equity like returns. Is
Speaker 1: that plausible in your view, or do you think this
Speaker 1: is going to just be less painful for bond investors
Speaker 1: than for stocks? Yeah, I think it is going to
Speaker 1: be less painful. I think quantitative tightening is going to
Speaker 1: keep a lid on the ability for bonds to really
Speaker 1: really rally and I think it's going to take a
Speaker 1: little bit of time for the economic data to think in.
Speaker 1: So I think you'll get a decent game. Uh. You know,
Speaker 1: I could see a ten percent we turn on the
Speaker 1: long bond over the next month or two, over the
Speaker 1: next month or two. So yeah, wow. What are you
Speaker 1: looking to hear from Fed Chair J Powell on Wednesday?
Speaker 1: What I'd like to hear is him paying a little
Speaker 1: bit more attention to the ECON data, to the forward
Speaker 1: looking stuff, maybe even, you know, shout out to the
Speaker 1: Fed X and say, Hey, we have to manage both
Speaker 1: sides of this right. We do have full employment as
Speaker 1: well as inflation. There's a lot of signs inflation are
Speaker 1: rolling over. We've got to look at the more CONTEMPORANEOUSA.
Speaker 1: I think something like that would be realistic. I think
Speaker 1: if he starts pounting on that for the next meeting, blah, blah, blah,
Speaker 1: I think markets are going to be respawnd very, very poorly,
Speaker 1: because he's just going to drive us into a recession.
Speaker 1: Just real quick here. I'm wondering your perspective on oil prices.
Speaker 1: We were talking earlier. What signal is nearly eighty dollars
Speaker 1: on w t I sending to global markets that are
Speaker 1: still looking with this disproportionate imbalance with supply and demand.
Speaker 1: So to me I think it's a negative signal, and
Speaker 1: I've been talking about this going back for months. We've
Speaker 1: all been kind of looking a lower oiler prices, lower inflation.
Speaker 1: That's good. Historically, when you go back to the two thousands,
Speaker 1: the great financial crisis, Um European debt crisis, lower oil
Speaker 1: prices is generally bad for equities. Right it is a
Speaker 1: signal that economy is slowing. And if you just go
Speaker 1: back to my one big argument about we underestimate how
Speaker 1: important crypto was. Right, if they were generating through their minding,
Speaker 1: all this energy usage and that industry starts dying off,
Speaker 1: which I think it's very high probability that it does
Speaker 1: in the coming months, that's just another their source of
Speaker 1: demand that we have. So I think again, we're spending
Speaker 1: way too much policy time responding to prior problems than
Speaker 1: to the current problems. Peter Sheer of academic securities. Thank
Speaker 1: you so much for being with us. This is the
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Speaker 1: Tom Keene and this is Bloomberg